Assignment I

1) Consider an 8% coupon, 30-year maturity bond with par value of $1,000 paying 60 semi-annual
coupon payments of $40 each. Suppose that the interest rate is 8% annually. What is the price
of the bond?
2) In the above problem what would be the bond price if the interest rate were to rise to 10%?
3) Suppose an 8% coupon, 30-year bond is selling at $1,276.76. What average rate of return would
be earned by an investor purchasing the bond at this price?
4) Suppose an 8% coupon, 30-year maturity bond sells for $1,150 and is callable in 10 years at a
call price of $1,100. Calculate the yield to maturity and the yield to call.
5) Consider an 8% coupon bond selling for $953.10 with 3 years until maturity making annual
coupon payments. The interest rates in the next 3 years will be, with certainty, r1 = 8%, r2 = 10%,
and r3 = 12%. Calculate the yield to maturity.
Please note: Each of the above problems carries 5 marks. So the assignment is for 5*5 = 25 marks.